Watch out, it’s not easy being the executor of an estate
I have been a football tragic since childhood and have played with, and against, the Editor of Firstlinks, Graham Hand, for many years. We currently play in a geriatric (age 60 and above) football match each week. In recent months, Graham has been the recipient of many verbal blasts from me about the frustrations I have felt as Executor of my late brother’s estate. Given that many readers of Firstlinks are likely to be asked to be an Executor at some stage in their lives, I am sharing some of my frustrations and what I would do differently if I am in this position again.
I am an actuary who has spent his working life around the superannuation industry, including consulting to major funds, and despite this, I found working with the procedures and institutions difficult.
My brother passed away on 28 May 2022 after a long illness. His partner had died over 20 years ago and he had no children. In recent years, he had simplified his financial assets so that on death, his only assets were his apartment, his superannuation benefit in the large industry fund REST, and a bank account.
For several years, I have held his Power of Attorney and he had nominated me as his Nominated Beneficiary in REST. Under his will, I was also the Executor. The final will, executed shortly before he died, stated that the superannuation benefit would meet the costs of the funeral and the balance then be distributed to 12 of his friends and relatives.
Believing myself to be financially literate, in what I thought was a fairly straightforward death benefit situation, I was happy to accept the role of an Executor. It is critical to remember, however, that superannuation does not form part of an estate unless and until the Trustee of the super fund decides to pay the benefit to the estate.
What would I do differently?
1. Nomination of Beneficiary
When my brother joined REST, he put my name on the application form as his Nominated Beneficiary. He nominated me as it was his wish that, as Executor of his estate, I would distribute the benefit to his various friends and relatives in accordance with his will. He was not familiar with superannuation law and he did not nominate me in my role as the Executor of his estate, which would have avoided most of the subsequent issues and delays in getting the benefit paid by REST.
In particular, his nomination of me as an individual was actually invalid, as superannuation benefits on death can only be paid to a legislatively-defined group of persons, including a spouse, a child, someone who is financially dependent on the deceased or in an inter-dependency relationship with the deceased, or to the deceased’s estate. However, at the time he joined REST, his occupation was postman and he was unaware of the intricacies of death benefit nominations. I now regret that I did not check and ask him to change the nomination to me as the Executor of his estate before he died.
After my brother’s death, REST was given the will and could clearly see that I was his Executor. However, to comply with what they saw as their fiduciary duty, and possibly their own deed and rules, they commenced looking for other persons who could be considered by the Trustee to receive a part, or all, of the benefit directly.
As part of this procedure, known as ‘claim staking’, they wrote to two of the beneficiaries mentioned in the will, asking if they wanted to be considered by the Trustee to receive a benefit directly from REST. If those beneficiaries of the will had agreed and REST had paid them directly, it would have caused an additional problem, as they could still have been entitled to their benefit under the will. Fortunately, neither wanted to be considered by the Trustee, but the process caused a further significant delay in paying the benefit. Again, this would have been avoided had I been nominated in my capacity as Executor of the estate.
2. Binding Nomination
I should have asked my brother to change his nomination to a Binding Death Benefit Nomination to me as Executor of his estate, as this would have removed the Trustee discretion in determining the benefit recipient. It would have resulted in a faster payment and avoided any possibility of a beneficiary of the estate being paid twice. Binding nominations are a little more complicated and in some cases are required to be renewed every three years.
If not required to be renewed, they need particular care if a person’s circumstances change, for example, remarriage. However, if it had been a Binding Nomination, I was told by REST that the Trustee would not have commenced the claim staking procedures.
3. Withdrawal before death
Before my brother died, I did consider asking him to withdraw the full benefit from REST while still alive. His benefit would then have been paid tax-free, whereas, if the benefit was paid after death there was the possibility of some tax liability. Most of his benefit, however, was from undeducted contributions (therefore not taxable further on death) and hence the tax payable would have been very small.
Naturally, I found this to be a difficult issue to raise with him in his last few months and I kept putting it off. As he had deteriorated both mentally and physically and he could no longer sign, I would have had to use my Power of Attorney to get the fund to make the payment. He had previously been close to death and pulled back each time and it was possible that he would do so again.
I incorrectly assumed that getting the death benefit paid by REST would be straightforward and reasonably quick, so I never raised the issue of withdrawal before death with him. Given the actual delay of over six months, I now believe I should have acted, although this may have resulted in other challenges and delays related to the Power of Attorney I held.
4. Setting up a bank account
The first requirement of an Executor should normally be to establish an estate bank account. I did not. Funeral costs were met by myself and my brother’s solicitor’s trust account, to be repaid later.
In late September 2022, I received a call from REST in which I confirmed my earlier request, made in a discussion with the death claims section, that the benefit be paid as an EFT to my bank account, as opposed to being payable to the estate. However, in October 2022, I received a letter from REST saying that the Trustee had decided that the death benefit must be paid to “The Estate of the late (my brother)”.
As no such bank account existed, I phoned my main bank, Macquarie, and asked if they would accept the cheque into my account as I could show that I was the Executor of the estate. They refused and said I would have to open a new account.
I spent several days talking to three banking institutions to establish an appropriate account in the name of “The Estate of the late (my brother)”. As the types of cash management accounts offered by Macquarie do not include accounts for estates, I was advised to set it up as a trust but that failed as there was no trust.
I next went to NAB, with whom I also have an account. They also advised they would not accept the cheque into my personal account. They advised that the cheque should be paid into an account at my brother’s bank, Great Southern Bank in Queensland. Great Southern Bank advised that his account had been closed and they would only re-open it if I created a new personal account for myself, which I neither need or want.
I then went back to REST asking if ‘my name as Executor for’ could be added to the cheque but was told this could only be done by challenging the Trustee decision, which would lead to a further delay of 90 days or more.
In the end, my brother’s solicitor said that his trust account could accept the cheque, so the best part of a week spent phoning multiple banks and REST, hanging on for up to 30 minutes for each call, was a total waste of time.
What I was not told by the banks at the time, but found out later, was that I should have asked for the account to be set up in the name of ‘The Executor of the Estate of the late (my brother)”.
Dealing with REST
1. Information requirements
I thought some of REST’s requirements were excessive. For example, I was asked for the death certificates of our parents. Our father died in 1957 and our mother in 2002, both in Ireland. My brother was 77 when he died and our parents, if alive, would have been 108 and 110. I have never seen their death certificates.
I was told by REST that when someone dies without a spouse or children, they may leave their benefit to their parents. Despite the fact that our long-dead parents, not being financially dependent on my brother, would not have been valid recipients of his benefit, I was required to draw up and deliver to REST a Statutory Declaration stating that our parents were no longer alive.
2. Payment of benefit
The letter I received in October 2022 stated that objections to the Trustee decision could be made within 28 days. If there were no objections then “… the benefit will be paid in accordance with the above proposed distribution after 15 November 2022”. I asked if I could collect the cheque directly from REST after that date but was told the cheque would be posted.
There were no objections to the Trustee decision and therefore I was expecting to receive the cheque in the mail in the days following 15 November 2022. Given this, I was perhaps over-enthusiastic in writing to all of his beneficiaries advising that payment should be made late November and asking for details of their bank accounts.
Some of his beneficiaries are quite old and are not well off and are on the age pension. They were very much looking forward to receiving their bequest. I was contacted by some of them when their benefit did not arrive as I had advised.
I checked the mail every day after 15 November but no cheque arrived. I eventually contacted the fund on 24 November and was told the cheque had been drawn on that day. I was told it could take another 5-10 business days before it would be posted but it would then be sent by Express Post.
Again, I asked if I could collect it but was told this is not allowed, even if I provided photo ID. This would be more secure than putting a large cheque in the mail, as well as avoiding further delays. I do not know why REST insisted on a posted cheque when I wanted an EFT. The cheque eventually arrived in the mail on 9 December 2022, dated 2 December 2022.
I realise that some death claims are complicated with divorces, divided families, competing claimants etc. In those cases, the Trustee needs to make careful enquiries to determine the proper recipient. However, in the case of my brother’s estate, it was a straightforward claim, but it took over six months from the date of death to receiving the payment. With the knowledge I have now, however, perhaps some of the problems and delays could have been avoided.
I hope my experience may help others to avoid similar problems in the future.
SMSF versus Industry Funds
There have been some articles in Firstlinks recently on transferring superannuation from a SMSF to a public offer fund as the members age and find it is becoming more difficult to manage their own fund.
The decision to close an SMSF and transfer to a public offer fund is a complicated one involving many issues such as compliance, investments, loss of control, governance, costs etc. Also, the time and effort to close an SMSF can be excessive without the help of someone who has gone through the process before. Although it is not the most important issue, the passing of decision-making power on the recipients of death benefits from the SMSF trustee to the trustee of the public offer fund needs to be one of the issues considered.